Bonds. Just Bonds.

This client correspondence serves as our weekly update regarding the fast-paced movements of financial markets, government central banks and the impact of each on portfolio performance. 

To echo the words of author Ian Fleming (author of the James Bond series of spy novels): 

“History is moving pretty quickly these days, and the heroes and villains keep on changing parts.” (1953) 

67 years later, this quote can be applied to today’s financial markets as stocks and bonds have swapped roles with stocks being heroes in 2019, yet villains in 2020. Meanwhile, escaping much of the headline news, bonds are the heroes of a diversified portfolio – the allocation to core bonds. Just bonds.

The principal value of client portfolios has been protected by exposure to municipal and taxable bond funds as stocks around the world suffered the fastest ever fall from record levels just a few weeks ago. When stocks fell, bond prices moved higher as investors scrambled for a safe haven. In fact, investors have poured record amounts into bond funds in recent weeks. 

The moves higher of bond prices have pushed the yield on the 10-year U.S. Treasury Note to a recent record low territory of 0.70%, which is well below the inflation rate of approximately 2.4%. The negative real yield of 1.7% has also reached record lows. While a flight from stocks is typical during a crisis as investors try to minimize risk, we caution those investors who are now seeking outsized exposure to bonds as they are guaranteeing a loss in the purchasing power of their monies. The magnitude of the downswing in stocks, and the slight gains in bonds, have caused most client portfolios to be underweighted to stocks relative to their targets. In turn, allocations to bonds are now above targets. 

A classic investment discipline is to rebalance these allocations back to target. However, given the continued uncertainty about the impact of current events on economies worldwide, we are not ready to make these reallocations. Also, this is not the time to add to our bond exposure. 

We work diligently with each client to assess their risk tolerance and their allocation to bonds represent the ballast each one needs to weather stock market downdrafts. The allocation to bonds and short-term money market funds insure that monies clients need to withdraw during the next several years is protected from the high level of volatility generated by stock markets around the world. 

The goal of this communication is to reiterate the disciplined approach that we have implemented with your input, and to bring some calm to the emotional stress associated with daily swings in financial markets. 

To add to this sense of calm, we share below a link forwarded to us by a friend that made us all smile.


This is a video from a young Italian choir, separated by quarantine, who illustrate the hope and solidarity of humanity during these difficult times.

To learn more about this video click: Helplessly Hoping